The US unemployment rate surged to 5.5 per cent in May, the biggest one-month increase in 22 years, as the world's largest economy weakened and employers cut jobs.
The figures, released yesterday, caught economists and Wall Street analysts by surprise after several weeks of more benign data on the state of the US economy, and investors bet that the Federal Reserve is unlikely to reverse its steep cuts in interest rates any time soon.
The Bureau of Labour Statistics said employers shed 49,000 jobs in May, the fifth straight month of decline and the longest losing streak since 2003. The reduction in employment opportunities was spread across most sectors of the economy and was not not-iceably concentrated in areas of the country hardest hit by the housing market slump.
The overall unemployment rate – the percentage of Americans looking for jobs – rose from 5 per cent in April to 5.5 per cent.
The surprising jump in the rate in May knocked confidence in the stock market, which opened lower and accelerated downwards as the soaring oil price – up $11 a barrel to hit $139 – threatened to add to the woes of the US consumer. The Dow Jones Industrial Average fell almost 400 points, or 3.1 per cent, to 12,209.81. Bond markets rallied and the dollar weakened.
Some economists warned that the unexpected spike in the jobless data may be down to technical distortions. Surveys from earlier months may have understated the rise, they said, and the May data showed a large increase in the labour force, including many just-grad-uated students who are not normally picked up until the June survey.
But Kevin Logan, senior US economist at Dresdner Kleinwort in New York, said it was impossible to argue away the rise. "People are parsing it and discussing whether it is distorted by new entrants, but their unemployment counts as much as the next man's.
"What it shows is that the students looking for jobs are not finding jobs. In any case, unemployment among people 25 and over also went up. The jump this month may be exaggerated, but it reflects a deteriorating labour market. The trend is clear: it is going up."
Economists pay particular attention to the headline unemployment rate because of the importance of consumer spending for US growth. Unemployment – and rising insecurity among those in work and worried about being made redundant – could undercut spending and deepen an economic slowdown.
The National Bureau of Economic Research, the official arbiter of whether the US is in a recession or not, says the strength or otherwise of the jobs market is one of the most important factors it considers.
Joshua Shapiro, chief US economist at MFR, described the jobs data as "a report that underscores the increasing pressures on consumers from a softening labour market on top of pre-existing woes of over-extended balance sheets, plunging housing prices, tight lending standards, and soaring petrol prices.
"After the temporary and modest beneficial impact of tax-rebate payments, consumers will have nothing left to fall back on".Reuse content